[PDF] Summary Statistics Of Option Implied Probability Density Functions And Their Properties eBook

Author : Damien P.G. Lynch
Publisher :
Page : 61 pages
File Size : 17,50 MB
Release : 2002
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ISBN :

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The statistics that summarise the probability distributions implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. This paper considers implied pdfs with a constant horizon of three months for Samp;P 500, FTSE 100, eurodollar and short-sterling. A time series analysis of the summary statistics provides some stylised facts about the behaviour of different elements of market expectations, their historical distribution and the relationships between them. The distributions of these measures provide information on past revisions to market expectations including the relative likelihood of upward rather than downward revisions and the extent to which these revisions were large. The similarity and relative stability of alternative measures for each element of market expectations is assessed to select a subset of summary statistics that can sufficiently reflect the information contained in the implied pdfs. Relationships between implied pdf summary statistics and movements in underlying assets are considered. Cross asset and cross country comparisons between the summary statistics series are also useful in revealing relations and/or associations between market participants' expectations about equity price and interest rate movements. Finally the information content of the implied pdfs for future macroeconomic and financial variables is assessed.

Author : Damien P.G. Lynch
Publisher :
Page : 57 pages
File Size : 40,2 MB
Release : 2002
Category :
ISBN :

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The statistics that summarise the probability distributions implied from option prices can be used to assess market expectations about future uncertainty, asymmetry and the probability of extreme movements in asset prices. This paper considers implied pdfs with a constant horizon of three months for Samp;P 500, FTSE 100, eurodollar and short-sterling. A time series analysis of the summary statistics provides some stylised facts about the behaviour of different elements of market expectations, their historical distribution and the relationships between them. The distributions of these measures provide information on past revisions to market expectations including the relative likelihood of upward rather than downward revisions and the extent to which these revisions were large. The similarity and relative stability of alternative measures for each element of market expectations is assessed to select a subset of summary statistics that can sufficiently reflect the information contained in the implied pdfs. Relationships between implied pdf summary statistics and movements in underlying assets are considered. Cross asset and cross country comparisons between the summary statistics series are also useful in revealing relations and/or associations between market participants' expectations about equity price and interest rate movements. Finally the information content of the implied pdfs for future macroeconomic and financial variables is assessed.

Author : Robert R. Bliss
Publisher :
Page : pages
File Size : 50,21 MB
Release : 2006
Category :
ISBN :

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Implied probability density functions (PDFs) estimated from cross-sections of observed option prices are gaining increasing attention amongst academics and practitioners. However, to date little attention has been paid to the robustness of these estimates or to the confidence users can place in the summary statistics, for example skewness or the 99th percentile, derived from fitted PDFs. This paper begins to address these questions by examining the absolute and relative robustness of two of the most common methods for estimating implied PDFs--the double-lognormal approximating function and the smoothed implied volatility smile methods. The changes resulting from randomly perturbing quoted prices by no more than a half tick provide a lower bound on the confidence intervals of the summary statistics derived from the estimated PDFs. Tests are conducted using options contracts tied to Short Sterling futures and the FTSE 100 index--both trading on the London International Financial Futures Exchange. Our tests show that the smoothed implied volatility smile method dominates the double-lognormal as a technique for estimating implied PDFs when average goodness-of-fits are comparable for both methods.

Author : Jessica List
Publisher :
Page : pages
File Size : 22,13 MB
Release : 2008
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ISBN :

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This thesis empirically analyses implied risk neutral probability distributions of SMI index options. The contribution of this thesis is its data base (SMI index options), the long observation period (1999 - 2008) and its attempt to use the framework of option implied risk neutral probability distributions in the context of trading strategies. The influence of important market variables (such as the risk premium and the term structure of Swiss interest rates) on the estimated RNDs summary statistics is analysed in a regression framework accounting for heteroscedasticity and autocorrelation of the variables under consideration. It turns out that most of the analysed domestic market variables do not have a significant influence on the calculated implied RND's summary statistics and no significant international spillovers are observable. In addition, option implied moments, in particular the volatility of the implied RND, seem to be poor predictors for future moments of the SMI return distribution. Trading strategies based on option implied information are implemented. After accounting for transaction costs, some of these strategies are not only able to outperform a direct investment in the underlying, but systematically outperformed comparable trading strategies based on spot prices.

Author : Stephen Satchell
Publisher : Elsevier
Page : 428 pages
File Size : 45,53 MB
Release : 2011-02-24
Category : Business & Economics
ISBN : 0080471420

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Forecasting Volatility in the Financial Markets, Third Edition assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting-edge modelling and forecasting techniques. It provides a survey of ways to measure risk and define the different models of volatility and return. Editors John Knight and Stephen Satchell have brought together an impressive array of contributors who present research from their area of specialization related to volatility forecasting. Readers with an understanding of volatility measures and risk management strategies will benefit from this collection of up-to-date chapters on the latest techniques in forecasting volatility. Chapters new to this third edition:* What good is a volatility model? Engle and Patton* Applications for portfolio variety Dan diBartolomeo* A comparison of the properties of realized variance for the FTSE 100 and FTSE 250 equity indices Rob Cornish* Volatility modeling and forecasting in finance Xiao and Aydemir* An investigation of the relative performance of GARCH models versus simple rules in forecasting volatility Thomas A. Silvey Leading thinkers present newest research on volatility forecasting International authors cover a broad array of subjects related to volatility forecasting Assumes basic knowledge of volatility, financial mathematics, and modelling

Author : John L. Knight
Publisher : Butterworth-Heinemann
Page : 428 pages
File Size : 21,5 MB
Release : 2002
Category : Business & Economics
ISBN : 9780750655156

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This text assumes that the reader has a firm grounding in the key principles and methods of understanding volatility measurement and builds on that knowledge to detail cutting edge modeling and forecasting techniques. It then uses a technical survey to explain the different ways to measure risk and define the different models of volatility and return.

Author : Deepa Datta
Publisher :
Page : 0 pages
File Size : 10,97 MB
Release : 2017
Category :
ISBN :

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We investigate the informational content of options-implied probability density functions (PDFs) for the future price of oil. Using a semiparametric variant of the methodology in Breeden and Litzenberger (1978), we investigate the fit and smoothness of distributions derived from alternative PDF estimation methods, and develop a set of robust summary statistics. Using PDFs estimated around episodes of high geopolitical tensions, oil supply disruptions, and macroeconomic data releases, we explore the extent to which oil price movements are expected or unexpected, and whether agents believe these movements to be persistent or temporary.